\  A  a 

Sljf  (Smu'ntmEut  Arnwutant 

Published  every  month  under  the  auspices  of  the 
Association  of  American  Government  Accountants 

Entered  as  second-class  matter  June  8,  1909,  at  the  Post  Office  at  Washington, 

D.  C.m  under  the  Act  of  March  8,  1879. 

...  .  _ _ -r 

-  -* 

VoL  3  JANUARY,  1910  No.  9 


Uniform  Standards  and  Methods  of  Accounting 
A  Fundamental  Necessity. 


By  Allen  Ripley  Foote,  President,  Ohio  State  Board  of  Commerce ;  President, 

*  International  Tax  Association. 

(An  address  before  the  Association  of  American  Government  Accountants.) 


TOPICS. 

Standards. 

Purpose  of  Accounting. 

Purpose  of  Government. 

Development  of  an  Exact  Science  of  Government. 

Uniform  Accounting  Systems  for  all  Governments  of  the 
Same  Class. 

Effective  Economic  Regulation. 

Public  Policies  Must  be  Governed  by  Facts. 

An  Accounting  Should  be  Required  from  the  Beneficiaries 
of  all  Special  Privileges. 

Ship  Subsidy. 

Protective  Tariff. 

Scientific  Accounting  and  the  Budget  System. 

A  New  Co-ordinate  Branch  of  Government  Needed. 
Conclusion. 

STANDARDS. 

Standards  are  clearly  defined  and  universally  accepted 
measures  by  which  the  rightness  of  moral,  economic  and  po¬ 
litical  thoughts  and  actions  may  be  determined.  A  standard 
meaning  for  words  is  necessary  to  render  language  intelli¬ 
gible.  Standard  weights  and  measures  are  necessary  to  ren- 


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The  Gov  eminent  Accountant . 

der  the  production  and  exchange  of  commodities  possible.  A 
standard  unit  of  value  is  an  indispensable  basis  for  the  devel¬ 
opment  of  denominational  currency  and  a  system  of  account¬ 
ing  expressed  in  terms  of  money. 

Such  standards  have  been  defined  and  accepted  for  so 
long  a  time  it  is  difficult  to  form  an  adequate  conception  of 
the  conditions  of  human  life  at  a  period  when  they  were  un¬ 
known,  or  when  argument  was  needed  to  demonstrate  their 
utility.  Appreciation  of  the  utility  and  value  of  such 
standards  should  inspire  an  intense  desire  to  add  to  their 
number  whenever  new  standards  are  found  necessary  to  for- 
hiulate  human  experience  into  concrete  statements  of  facts 
scientifically  determined. 

Those  who  developed  mathematics  into  an  exact  science 
rendered  a  service  to  humanity  of  such  transcendent  impor¬ 
tance  it  may  be  thought  none  other  can  be  equal  to  it,  but 
the  day  will  come  when  those  who  aid  in  standardizing  the 
units  and  methods  of  accounting  so  as  to  make  it  possible  to 
formulate  experience  into  concrete  statements  of  facts  scien¬ 
tifically  determined  will  be  recognized  as  having  rendered  a 
service  second  to  none  other  in  value.  Accounting  can  be  de¬ 
veloped  into  an  exact  science  only  by  standardizing  comparable 
units  of  efficiency  and  methods  of  record  keeping. 

Through  the  exact  science  of  mathematics  and  the  exact 
science  of  accounting  an  exact  science  of  Government  can  be 
developed. 

PURPOSE  OF  ACCOUNTING. 

In  private  business  the  purpose  of  accounting  has  ad¬ 
vanced  from  a  mere  record  of  exchanges  between  buyers  and 
sellers  to  an  analysis  of  infinite  detail  to  show  the  true  effect 
upon  general  results  of  every  economic  factor  involved,  and 
also  the  effect  of  every  phase  of  the  adopted  business  policy. 
Units  of  efficiency  are  standardized  to  render  efficiency  com¬ 
parisons  possible.  Success  in  the  management  of  business 
undertakings  is  best  promoted  through  the  aid  of  accurate 
and  scientific  accounting. 

Accounting  in  public  business  was  originally  intended 
simply  to  show  the  honesty  of  public  officials  and  employes. 
Lacking  the  incentive  of  achieving  success  under  conditions 
of  keen  competition,  public  accounting  and  methods  of  hand¬ 
ling  all  business  details  has  not  made  as  great  an  advance 
toward  the  creation  of  uniform  standards  and  methods  as  has 
been  made  in  private  business.  In  recent  years,  however,  the 
fact  that  the  government  cannot  perform  its  duties  in  a  satis¬ 
factory  manner  without  employing  standards  of  efficiency  and 
scientific  methods  of  accounting  has  been  continually  growing 
clearer  until  it  is  about  to  receive  universal  recognition  and 


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The  Government  Accountant . 


JT 


acceptance.  It  is  beginning  to  be  understood  that  the  help* 
fulness  of  government  can  be  best  shown  by  the  effects  of  its 
policies  upon  the  common  good  demonstrated  by  scientifically 
stated  facts. 

The  efficiency  of  the  government  involves  the  manage¬ 
ment  of  its  various  departments  as  working  organizations  and 
the  effects  of  its  regulations  on  the  morals  and  business  of  the 
people  governed. 

Honest  accounting  may  be  so  done  as  to  be  entirely  worth¬ 
less  in  demonstrating  economic  efficiency.  The  accounting 
system  of  the  great  departments  of  the  government  may  be 
done  in  a  manner  that  will  show  an  honest  record  for  every 
dollar  received  and  expended  without  giving  any  clue  to 
economic  facts  of  equal  importance  showing  the  comparative 
efficiency  of  their  administration. 

The  day  is  approaching  when  the  people  will  demand 
that  their  government  shall  not  only  show  how  much  money 
it  has  received  and  expended,  but  also  an  accounting  for  all 
public  property  which  shall  demonstrate  that  its  administra¬ 
tion  has  been  conducted  with  a  due  regard  for  economip 
efficiency. 

The  day  will  come  when  the  people  will  limit  the  power 
of  their  government  to  collect  revenue  from  them,  by  what¬ 
ever  means  to  an  amount  net  greater  than  is  required  for  the 
effective  performance  of  its  duties  when  economically  ad¬ 
ministered. 

The  day  has  come  when  the  demand  is  made  that  the 
accounts  of  all  public  business  shall  be  analyzed  in  sufficient 
detail  to  show  the  true  effect  upon  the  common  good  of  every 
economic  factor  involved,  and  also  the  effect  of  every  phase 
of  the  adopted  public  policies.  That  this  may  be  done,  units 
of  efficiency  must  be  standardized  and  uniform  methods  of  ac¬ 
counting  must  be  developed  that  will  render  comparative 
.  statements  possible. 

0/5  The  function  of  government  possessing  the  greatest 
power  for  good  is  its  ability  and  duty  to  formulate  human 
.  experience  into  concrete  statements  of  facts  scientifically  de¬ 
ft*  termined. 

This  is  the  master  key  that  will  open  the  way  for  progress 
0  to  a  better  civilization. 


PURPOSE  OF  GOVERNMENT. 

RT  Business  accounting  is  rapidly  being  developed  into  an 
exact  science  that  can  be  depended  upon  to  guide  energy  to 
3  the  achievement  of  the  object  of  the  enterprise — money  making. 

Public  accounting  needs  to  be  developed  into  an  exact 
£2  science  that  can  be  depended  upon  to  guide  public  policies  to 


■,-rb  / 


343 


The  Government  Accountant . 

the  achievement  of  the  purpose  of  government — the  promotion 
of  the  common  good. 

The  people  of  this  country  are  now  engaged  in  the  task  of 
demonstrating  to  the  world  that  their  form  and  system  of 
government  is  the  best  ever  devised  for  the  promotion  of  the 
common  good.  This  affirmation  can  be  established  as  a  fact 
only  by  proving  that  under  its  administration  each  of  its  citi¬ 
zens  is  guaranteed  equal  opportunity  to  the  enjoyment  of  life, 
liberty  and  the  pursuit  of  happiness,  so  far  as  such  equality 
can  be  promoted  by  legislative  exactments  and  governmental 
administration.  To  make  this  guarantee  effective,  it  must  be 
made  certain  that  no  person  shall,  in  the  exercise  of  rights 
so  secured  to  him,  infringe  upon  the  similar  rights  of  any 
other  person.  This  requires  the  fulfilment  of  moral  and 
economic  law  and  the  realization  of  the  requirements  of 
justice  in  the  conduct  of  every  citizen. 

DEVELOPMENT  OF  AN  EXACT  SCIENCE  OF  GOVERNMENT. 

The  development  of  an  exact  science  of  government  will 
become  possible  only  when  the  exact  science  of  accounting  has 
made  effective  economic  regulation  a  realized  fact. 

Progress  in  this  direction  has  been  retarded  because  the 
policies  of  government  have  been  determined  by  considerations 
of  political  expediency  rather  than  by  the  requirement  of  true 
moral  and  economic  principles. 

Relative  business  efficiency  is  at  once  determined  by  rec¬ 
ognized  standards  of  commercial  success.  At  the  present  time 
we  have  no  recognized  standards  of  governmental  success  by 
which  relative  efficiency  m  public  service  can  be  determined 
or  the  relative  efficiency  of  governments  can  be  established. 
Such  standards  are  necessary  to  supply  an  incentive  to  achieve 
success  in  the  policies  and  administration  of  government,  which 
will  be  equivalent  to  the  incentive  of  achieving  commercial  suc¬ 
cess  which  inspires  all  efforts  to  make  improvements  in  the 
management  of  private  business. 

One  penalty  for  permitting  governmental  policies  to  be 
determined  by  political  expediency  is  being  paid  by  the  slow 
improvement  made  in  the  effective  management  of  public  busi¬ 
ness,  and  the  retarded  advance  toward  the  creation  of  uniform 
standards  of  efficiency  and  methods  of  scientific  accounting 
everywhere  shown  in  the  administration  of  public  affairs. 

We  need  service  records  that  will  show  the  relative  effi¬ 
ciency  of  every  public  employee,  however  and  whenever  em¬ 
ployed,  by  a  school  district,  a  township,  a  village,  a  city,  a 
county,  a  State,  or  the  Federal  Government.  The  existence 
of  such  records  will  enable  every  employee  to  demonstrate  his 
worth  to  his  employers — the  people — and  to  the  dispensers  of 
political  patronage.  Such  records  will  develop  a  public  opin- 


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The  Government  Accountant . 


ion  that  will  enable  every  public  employee  to  hold  his  posi¬ 
tion  and  to  win  promotion  by  virtue  of  his  own  merit  unaided 
by  favoritism  of  any  kind. 

Such  records  will  establish  the  rule  of  filling  all  positions 
in  the  public  service,  above  initial  primary  grades,  by  pro¬ 
motions  from  a  lower  to  a  higher  grade  determined  by  merit, 
and  by  merit  alone.  Such  records  will  destroy  the  vicious 
principles  of  “rotation  in  office”  and  “to  the  victors  belong  the 
spoils,”  by  demonstrating  to  the  people  the  wisdom  of  retain¬ 
ing  elective  officials  in  office,  and  of  promoting  them,  as  long 
and  as  far  as  their  devotion  to  the  common  good  will  justify. 

An  exact  science  of  government,  if  developed  at  all,  must 
be  developed  by  those  who  devote  their  lives  to  the  study  of 
governmental  efficiency ;  to  formulating  correct  standards ; 
to  the  improvement  of  accounting  methods ;  to  the  development 
of  functions;  to  the  regulation  of  activities;  to  the  unerring 
determination  of  justice,  guided  thereto  by  facts  with  which 
they  become  familiar  through  the  services  they  render. 

When  civil  public  service  is  recognized  and  dealt  with  as 
a  profession  it  will  attract  persons  endowed  with  a  high  de¬ 
gree  of  brain  efficiency  and  inspired  with  true  patriotism  who 
will  make  as  honorable  records  in  their  respective  spheres  of 
duty  as  have  ever  been  made  by  “the  men  behind  the  guns”  or 
by  their  commanders.  Such  men,  secure  in  their  positions  and 
performing  their  duties  under  a  system  of  civil  administration, 
at  least  as  well  devised  for  its  purpose  as  the  system  of  military 
and  naval  administration,  will  develop  models  of  efficiency  out 
of  the  inefficient  school  district,  township,  village,  city,  county, 
State  and  Federal  Governments  now  existing.  When  this  is 
done  an  exact  science  of  government  can  be  established. 

UNIFORM  ACCOUNTING  SYSTEMS  FOR  ALL  GOVERNMENTS  OF  THE 

SAME  CLASS. 

Efficiency  can  be  shown  only  by  comparison.  It  may  be 
indicated  in  private  and  in  public  business  by  comparisons  of 
the  records  of  one  year  with  another.  The  value  of  such  com¬ 
parison  will  grow  as  the  experience  of  year  after  year  is  added. 
But  the  real  test  of  efficiency  will  be  found  in  comparisons  of 
experience  between  all  governments  of  the  same  class  rather 
than  in  comparisons  of  the  experience  of  the  same  governments 
for  one  year  with  that  of  other  years.  That  such  comparisons 
may  be  scientifically  made,  the  accounts  of  all  governments  of 
the  same  class  must  be  kept  by  a  uniform  system.  From  such 
accounts  only  can  comparable  statistics  be  obtained. 

The  effective  administration  of  governments  requires 
specializing  the  work  into  departments.  The  system  of  ac¬ 
counting  should  be  devised  to  cause  each  department  to  make 
an  efficiency  record  comparable  with  the  similar  records  of  all 


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The  Government  Accountant. 


other  departments,  and  to  permit  a  grouping  of  the  statistics  of 
each  government  in  statements  comparable  with  the  similar  sta¬ 
tistics  of  all  other  governments  of  the  same  class.  When  this 
is  done  those  who  make  civil  service  a  profession,  and  those 
who  study  civic  problems  as  a  scientific  or  a  patriotic  duty, 
will  be  guided  by  the  recorded  facts  of  experience,  which  will 
render  their  conclusions  a  safe  basis  for  public  action. 

Comparable  statistics  derived  from  uniform  systems  of 
accounting  are  to  governments  what  correct  service  records  are 
to  public  employees  in  establishing  relative  efficiency,  in  demon¬ 
strating  true  merit.  It  is  much  to  the  employees  and  officials 
of  a  school  district  to  have  the  people  of  their  districts  believe 
they  have  administered  the  duties  of  their  public  trust  effi¬ 
ciently  and  well,  but  it  is  infinitely  more  to  them  to  have  the 
people  of  their  district  know  this  has  been  done  because  the  fact 
has  been  established  by  comparison  with  the  administration  of 
every  school  district  in  the  State.  This  statement  is  true  with 
cumulative  emphasis,  as  the  affairs  of  government  grow  in 
magnitude,  for  the  employees,  officials  and  people  of  townships, 
villages,  cities,  counties,  States  and  National  governments. 

This  fact  is  beginning  to  be  understood  and  appreciated. 
One  item  may  be  quoted  to  illustrate  this  point,  taken  from  the 
New  York  Evening  Post  for  January  5,  1910: 

“Chicago,  January  4. 

“Elton  Lower,  president  of  the  Civil  Service  Commission, 
appeared  before  the  City  Council  Finance  Committee  yester¬ 
day  with  a  request  for  an  appropriation  of  $50,000  to  carry  out 
a  new  efficiency  plan  which  would  result  in  an  annual  saving 
of  $300,000,  in  the  opinion  of  Alderman  B.  W.  Snow,  chairman 
of  the  Finance  Committee. 

“Mr.  Lower’s  plan,  which  has  the  approval  of  the  Civil 
Service  Reform  Association,  contemplates  the  establishment  of 
a  bureau  of  experts  to  keep  a  constant  record  of  the  efficiency 
of  municipal  employees,  to  investigate  and  examine,  and  in 
general  to  carry  out  the  provisions  of  the  city  civil  service  act. 

“It  aims,  in  a  few  words,  to  apply  to  the  municipal  ser¬ 
vice  what  has  been  tried  and  found  successful  in  large  cor¬ 
porations.  Boston,  New  York  and  Washington,  it  is  said, 
have  long  been  figuring  on  such  a  scheme  as  Mr.  Lower  has 
proposed.” 

The  grouping  of  accounts  should  be  devised  to  bring  into 
full  view  and  correct  relation  every  item  and  factor  necessary 
to  show  true  conditions  and  to  establish  relative  efficiency. 

Fundamentally,  it  is  the  business  of  every  government  to 
show  the  care  and  thrift  with  which  it  preserves,  maintains, 
improves  and  uses  government  property  of  every  sort  and  kind. 
Dollars  invested  in  property  or  supplies  should  be  looked  after 
and  accounted  for  with  as  much  accuracy  as  dollars  invested  in 
current  funds.  This  is  a  sadly  neglected  field  of  investigation. 


346 


The  Government  Accountant. 


When  rightly  investigated  and  the  wastage  of  negligence  and 
unthrift  have  been  corrected,  the  fact  that  wastage  of  public 
property  and  supplies  is  an  important  factor  in  the  increased 
cost  of  government  will  be  clearly  demonstrated. 

Next  in  order  is  the  development  of  all  sources  of  revenue. 
Such  sources  should  be  classified  properly  to  show  the  contribu¬ 
tion  made  to  the  public  treasury  by  every  vocation,  industry  or 
business.  Such  accounts  will  show  the  diligence  of  public 
officials  in  collecting  all  that  is  lawfully  due  to  the  govern¬ 
ment  from  the  taxpayers  in  each  class  and  the  care  with  which 
they  look  after  the  small  change  that  should  come  into  the 
treasury  by  means  of  fees,  fines,  and  dues  of  every  class,  and 
salvage  from  the  sale  of  wornout  or  discarded  machinery, 
tools,  furniture  and  waste  material  of  every  kind.  It  is  not 
a  violent  assertion  to  state  that  the  loss  caused  by  lack  of  effi¬ 
ciency  in  these  respects  is  a  far  heavier  burden  on  taxpayers 
than  all  losses  caused  by  dishonesty.  The  negative  graft 
caused  by  failure  to  collect  what  is  due  to  the  government  is 
far  greater  than  the  positive  graft  caused  by  failure  to  account 
properly  for  all  money  collected. 

The  lack  of  a  comprehensive  appreciation  of  all  that  is 
included  in  the  exact  science  of  accounting  is  shown  by  the 
fact  that  popular  thought  is  almost  wholly  centered  upon 
honest  accounting  for  all  money  received.  It  seldom  looks 
after  the  efficient  collections  of  all  money  that  should  be  se¬ 
cured.  It  has  never  grasped  the  fact  that  effective  thrift  in 
expenditure  is  more  important  than  honesty  in  expenditure, 
because  losses  caused  by  incompetency  and  wastefulness  are 
enormously  greater  than  losses  caused  by  dishonesty.  It  is  as 
important  to  show  what  becomes  of  things  bought  with  money 
received  as  it  is  to  show  how  money  received  has  been  expended. 

EFFECTIVE  ECONOMIC  REGULATION. 

There  can  be  no  effective  economic  regulation  without 
scientific  accounting.  This  is  true  of  all  regulation.  It  ap¬ 
plies  with  equal  force  to  the  regulation  of  private  affairs  by  the 
person  interested;  to  the  regulation  of  partnership  affairs  by 
the  partners  interested ;  to  the  regulation  of  corporate  affairs  * 
by  the  shareholders  interested ;  and  to  the  regulation  of  public 
affairs  by  members  of  legislative  bodies  and  by  the  public 
officials  in  the  departments  of  administration  and  justice. 

There  can  be  no  scientific  accounting  without  a  grouping 
of  items  that  will  correctly  show  the  relation  to  each  other  of 
every  essential  economic  factor  in  all  statements  showing  costs 
of  living,  costs  of  products,  costs  of  services  and  costs  of  gov¬ 
ernment,  whether  rendered  by  a  person,  a  partnership,  a  cor¬ 
poration  or  a  government.  Such  an  analytic  grouping  is 
especially  needed  in  public  accounting. 

It  is  the  function  of  associations  devoted  to  scientific  study 
to  formulate  statements  of  economic  principles  and  analytic 


347 


The  Government  Accountant. 


groupings  of  the  items  of  accounts  designed  to  bring  into 
view  and  show  the  correct  value  of  every  economic  factor  in¬ 
volved.  By  so  doing  they  can  erect  scientific  standards  for  the 
guidance  of  the  people.  In  this  way,  and  in  this  way  only, 
can  a  correctly  informed  public  opinion  be  created  that  will 
require  public  regulations  and  public  policies  to  conform  with 
scientific  economic  standards. 

Effective  economic  regulations  cannot  be  formulated  or  en¬ 
forced  without  the  guidance  of  scientific  economic  standards. 
The  requirements  of  such  standards  must  be  recognized  in  all 
regulations  required  by  law.  Attempts  to  make  such  standards 
conform  to  the  requirements  of  law  will  destroy  them. 

PUBLIC  POLICIES  MUST  BE  GUIDED  BY  FACTS. 


The  conduct  of  a  person,  partnership,  corporation,  or 
municipal  body;  of  a  school  district,  township,  village,  city, 
county,  State  or  of  the-  Federal  Government,  when  guided 
without  the  information  that  can  be  derived  only  from  a  sci¬ 
entific  system  of  accounting,  is  necessarily  guided  by  guess¬ 
ing,  prejudice  and  superstition.  The  science  of  accounting  is 
to  the  government  of  the  person,  and  of  every  combination  of 
persons  for  private  or  public  purposes,  what  the  science  of 
navigation  is  to  ocean  travel.  It  must  be  depended  upon  to 
guide  action  to  the  desired  objective  point.  A  correct  obser¬ 
vation  of  an  untrue  compass,  or  an  unintelligent  observation 
of  a  true  compass  must  inevitably  cause  an  error  in  direction. 

All  theories  as  to  a  proper  course  must  submit  to  the  arbi¬ 
tration  of  facts.  Tested  by  ascertained  facts,  all  theories  must 
stand  or  fall.  Those  who  honestly  advocate  and  those  who 
honestly  oppose  a  policy  should  vie  with  each  other  in  requiring 
that  scientific  and  uniform  standards  and  methods  of  account¬ 
ing  shall  be  employed  for  its  administration.  A  knowledge 
of  facts  is  necessary  for  the  rendering  of  just  judgments. 
Scientific  and  uniform  standards  and  methods  of  accounting 
are  fundamentally  necessary  for  the  demonstration  of  facts. 
Charges  of  dishonesty  or  incompetency  are  more  frequently 
based  on  the  results  of  a  policy  guided  by  unintelligent  ac¬ 
counting  than  upon  dishonest  entries  showing  receipts  or  dis¬ 
bursements.  Losses  caused  by  ignorance  are  enormously 
greater  than  losses  caused  by  dishonesty.  Scientific  accounting 
safeguards  honesty.  It  tends  to  prevent  dishonesty. 

Honesty  and  intelligence  must  be  combined  to  eliminte 
errors  voluntarily  or  unintelligently  made.  When  errors  are 
eliminated,  all  records  will  tell  the  truth ;  all  personal  conduct 
will  be  right ;  all  policies  will  be  sound ;  the  prosperity  of  the 
people  will  rest  upon  a  foundation  as  enduring  as  the  laws  of 
nature  that  govern  the  fruitage  of  the  earth. 


348 


The  Government  Accountant. 


AN  ACCOUNTING  SHOULD  BE  REQUIRED  FROM  THE  BENEFICIARIES^ 

OF  SPECIAL  PRIVILEGES. 


Whenever  a  government  grants  a  special  privilege,  a  due 
regard  for  the  common  good  demands  that  an  accounting  be 
required  from  the  beneficiary  of  the  privilege  that  will  clearly 
show  all  of  the  economic  results  of  its  administration.  With¬ 
out  the  information  that  can  be  derived  only  from  a  scientific 
system  of  accounting  a  government  is  powerless  to  regulate 
intelligently  the  administration  of  any  privilege  it  may  grant. 
It  is  fundamentally  necessary  that  it  shall  be  a  settled  princi¬ 
ple  of  public  policy  that  every  grant  of  a  special  privilege 
shall  provide  that  the  beneficiaries  of  the  privilege  shall  keep 
the  accounts  of  its  administration  as  public  accounts,  in  form 
prescribed  by  the  government,  and  that  they  shall  be  audited 
annually  by  a  certified  public  accountant.  When  the  exercise 
of  a  privilege  involves  the  supplying  of  a  service  to  the  public, 
the  grant  should  provide  that  charges  shall  not  be  higher  than 
is  necessary  to  produce  an  annual  income  sufficient  to  pay  all 
costs  of  ownership  and  operation  and  a  reasonable  profit  for 
the  compensation  of  owners  and  managers.  This  is  a  funda¬ 
mental  basis  for  the  intelligent  regulation  of  all  public  service 
utilities.  When  regulated  on  this  basis,  every  public  service 
utility  will  become,  as  the  grant  of  the  privilege  desigJ4&C5fl  it 
should  be,  an  important  factor  in  the  development  of  the  com¬ 
mon  good. 


SHIP  SUBSIDY. 

An  intelligent  application  of  this  proposition  to  the  policy 
of  subsidizing  ocean  steamship  lines  will  settle  that  question  in 
a  way  that  will  effectually  establish  our  merchant  marine 
wherever  government  aid  is  required  for  the  accomplishment 
of  such  a  purpose.  The  bill  should  provide  that  every  bene¬ 
ficiary  of  a  subsidy  authorized  by  the  act  shall  operate  his  ships 
between  ports  on  a  sailing  schedule  and  that  all  charges  for 
services  of  every  kind  shall  be  according  to  rate  schedules 
approved  by  the  government.  The  bill  should  also  provide 
that  all  accounts  of  the  beneficiary  pertaining  to  the  opera¬ 
tion  of  the  service  shall  be  kept  as  public  accounts,  in  form 
prescribed  by  the  government,  and  shall  be  audited  annually 
by  a  certified  public  accountant,  and  that  the  subsidy  shall  be 
an  amount  which,  in  addition  to  all  income  derived  from  opera¬ 
tion,  is  sufficient  to  pay  a  reasonable  dividend  upon  the  capital 
necessarily  employed,  with  a  flexible  differential  based  on  per¬ 
centage  of  increase  in  business  from  year  to  year. 

These  provisions  will  secure  the  establishment  of  lines 
between  ports  where  the  promotion  of  commerce  is  desirable. 
It  will  supply  the  two  most  important  factors  in  the  develop¬ 
ment  of  commerce,  regularity  of  service  and  low  transporta- 


349 


The  Government  Accountant. 


tion  charges.  They  will  enable  the  government  to  deliberately 
fix  sailing  dates  and  rates  of  charges,  in  order  to  promote  com¬ 
merce,  that  will  not  produce  sufficient  income  to  pay  dividends, 
permitting  dividends  to  be  paid  out  of  the  subsidy  until  such 
time  as  an  increased  volume  of  business  may  render  a  subsidy 
unnecessary.  The  development  of  commerce  is  the  true  ob¬ 
jective  point,  not  the  building  or  sailing  of  ships.  When  a 
sufficient  volume  of  commerce  has  been  established,  the  ships  it 
requires  will  be  built  and  navigated  without  the  aid  of  a  sub¬ 
sidy. 

To  grant  a  subsidy  without  providing  for  governmental 
control  over  the  ports  between  which  the  ships  are  to  sail,  their 
sailing  dates,  the  charges  for  their  service,  the  accounting  of 
their  operation  and  the  dividends  they  are  to  earn,  will  be  to 
deliberately  give  away  money  collected  from  taxpayers  with¬ 
out  securing  an  equivalent  in  value  for  the  promotion  of  the 
common  good. 

PROTECTIVE  TARIFF. 

The  principle,  American  protection  for  American  indus¬ 
tries,  is  as  vitally  necessary  for  American  commercial  inde¬ 
pendence  as  the  principle  that  every  citizen  shall  owe  allegiance 
to  no  other  government  is  to  American  political  independence. 

When  American  protection  is  granted  to  an  industry  in 
order  to  enable  it  to  overcome  an  existing  difference  in  economic 
conditions,  the  purpose  is  to  protect  such  industry  until 
through  its  economic  development  and  other  economic  changes, 
it  is  able  to  operate  without  the  aid  of  governmental  protection. 
The  effective  application  of  this  principle  is  absolutely  depend¬ 
ent  upon  a  system  of  statistical  information  that  will  show 
accurately,  at  all  times,  all  changes  in  economic  conditions  at 
home  and  abroad  which  in  any  way  affect  the  economic  condi¬ 
tion  of  a  protected  industry.  Such  economic  changes  may  be 
entirely  independent  and  outside  of  the  industry  itself,  such  as 
increased  cost  of  production  in  foreign  countries,  or  decreased 
rates  of  interest,  taxes,  or  transportation  charges  in  this  coun¬ 
try.  To  such  changes  must  be  added  decreased  cost  of  produc¬ 
tion  on  the  part  of  the  industry  incident  to  decreased  cost  of 
material  or  wages  and  the  economies  that  result  from  improved 
machinery  and  increased  output.  The  amount  of  protection 
required  at  any  time  is,  or  should  be,  determined  by  the  differ¬ 
ence  between  the  total  of  economic  advantages  enjoyed  by  the 
American  producer  in  comparison  with  the  total  of  economic 
advantages  enjoyed  by  his  foreign  competitor  who  seeks  to  sell 
products  in  our  home  market.  Protection  will  become  effect¬ 
ively  established  only  when  applied  under  the  guidance  of  a 
statistical  accounting  system  that  will  continuously  adjust  this 
difference  in  economic  advantages  in  accordance  with  scien¬ 
tifically  ascertained  facts. 

As  the  principle  of  protection  is  applied  by  means  of  an 

350 


The  Government  Accountant. 

import  duty,  the  amount  of  the  revenue  tariff,  plus  cost  of 
transportation  from  a  foreign  country,  is  always  an  important 
factor  in  the  economic  advantages  possessed  by  an  American 
producer  selling  in  our  home  market. 

The  adjustment  of  the  difference  in  economic  advantages 
may  be  illustrated  as  follows: 

ANNUAL  ADJUSTMENT  OF  ECONOMIC  DIFFERENCES. 


Years  .  1  2  3  4  5  6  7  8  9  10 

Ocean  Transportation...  5434565445 
Federal  Revenue  Tariff..  10  10  12  12  11  11  10  10  9  9 

American  Economic  De¬ 
velopment  .  45  50  55  60  55  50  65  70  80  86 

Total  Value  of  Ameri¬ 
can  Economic  Posi¬ 
tion  .  60  64  70  76  71  67  80  84  93  100 

Total  Value  of  Foreign 


Economic  Position  .  .  .  100  100  100  100  100  100  100  100  100  100 

Federal  Protection  Duty 
Required  to  Adjust 

Economic  Difference..  40  36  30  24  29  33  20  16  7  0 

It  will  be  observed  that  in  the  last  two  years  the  total  of 
cost  of  transportation,  revenue  duties  and  American  economic 
development  gives  the  American  producer  points  of  advantage 
nearly  equal  and  finally  equal  to  the  total  of  foreign  economic 
advantages. 

Of  course  none  of  these  conditions  remain  in  a  perma¬ 
nently  fixed  condition  from  year  to  year,  all  are  subject  to 
frequent  changes;  even  the  rate  of  revenue  tariff  here  shown  to 
change  but  little  for  the  entire  period,  may  be  changed  ma¬ 
terially. 

The  adjustment  of  economic  differences,  like  the  settle¬ 
ment  of  trade  balances,  is  an  ever-recurring  contingency. 
Such  adjustments  can  be  properly  made  only  through  the  work 
of  a  thoroughly  organized  and  equipped  permanent  protective 
tariff  commission  clothed  with  ample  authority  to  investigate, 
verify  and  apply  ascertained  facts  to  the  problem  of  promoting 
the  common  good  through  adequate  protection  for  American 
industries. 

The  adoption  of  this  system  will  substitute  the  stability 
of  a  scientific  method  of  administering  the  economic  principle 
of  American  protection  for  American  industries  for  the  exist¬ 
ing  uncertainty  of  legislation  guided  by  an  uninformed  elec¬ 
torate. 

SCIENTIFIC  ACCOUNTING  AND  THE  BUDGET  SYSTEM. 

Argument  is  not  needed  in  your  presence  to  demonstrate 
the  advantages  of  the  budget  system  of  public  financial  admin¬ 
istration.  Equally  obvious  to  you  are  the  advantages  of  a 
scientific  system  of  accounting  to  serve  as  an  indispensable  basis 
for  the  budget  system.  You  have  no  more  time  than  you  will 
need  to  get  this  foundation  well  made  before  public  policy  will 


351 


The  Government  Accountant. 


require  that  the  budget  system  shall  be  erected  upon  it.  It  will 
not  be  long  before  public  opinion  will  hold  the  executive  branch 
of  a  government  to  a  strict  responsibility  for  estimated  expen¬ 
ditures  as  well  as  for  expenditures  actually  made.  Scientific 
accounting  must  furnish  the  information  without  which  relia¬ 
ble  estimates  cannot  be  made.  Scientific  accounting  must  fur¬ 
nish  the  evidence  that  expenditures  have  been  economically 
made.  By  this  means  only  can  a  scientific  system  of  co-ordinat¬ 
ing  revenue  and  expenditures  be  established. 

It  is  the  business  of  those  responsible  for  the  financial  man¬ 
agement  of  a  government  to  see  that  each  department  gets  the 
money  it  needs,  that  no  money  goes  where  it  is  not  needed,  that 
revenue  is  procured  in  the  least  troublesome  and  least  expensive 
way,  that  an  exact  yearly  balance  is  struck,  that  the  policy  of 
expenditure  is  self-consistent  and  reasonably  permanent  from 
year  to  year.  Such  an  administrative  policy  cannot  be  effec¬ 
tively  carried  out  without  the  adoption  of  the  budget  system. 

An  important  step  in  this  direction  has  been  taken  by  the 
Federal  government.  What  is  virtually  a  revolution  in  finan¬ 
cial  methods  was  effected  last  year  in  the  adoption  of  section  T 
of  the  Sundry  Civil  Appropriation  bill,  approved  March  4, 
1909,  the  precise  language  of  which  follows : 

“Immediately  upon  the  receipt  of  the  regular  annual  es¬ 
timates  of  appropriations  needed  for  the  various  branches  of 
the  government  it  shall  be  the  duty  of  the  Secretary  of  the 
Treasury  to  estimate  as  nearly  as  may  be  the  revenues  of  the 
government  for  the  ensuing  year,  and  if  the  estimates  for 
appropriations,  including  the  estimated  amount  necessary  to 
meet  all  continuing  and  permanent  appropriations,  shall  exceed 
the  estimated  revenues,  the  Secretary  of  the  Treasury  shall 
transmit  the  estimates  to  Congress  as  heretofore  required  by 
law,  and  at  once  transmit  a  detailed  statement  of  all  of  the  said 
estimates  to  the  President,  to  the  end  that  he  may,  in  giving 
Congress  information  of  the  state  of  the  Union  and  in  recom¬ 
mending  to  their  consideration  such  measures  as  he  may  judge 
necessary,  advise  the  Congress  how,  in  his  judgment,  the  esti¬ 
mated  appropriations  could  with  least  injury  to  the  public 
service  be  reduced  so  as  to  bring  the  appropriations  within  the 
estimated  revenues,  or,  if  such  reduction  be  not,  in  his  judg¬ 
ment,  practical,  without  undue  injury  to  the  public  service,  that 
he  may  recommend  to  Congress  such  loans  or  new  taxes  as  may 
be  necessary  to  cover  the  deficiency.” 

The  New  York  Journal  of  Commerce ,  in  its  issue  for 
December  13, 1909,  commenting  upon  this  provision  editorially, 
says: 

“Careful  examination  of  the  terms  of  the  new  law  reveals 
the  fact  that  it  is  destined  to  accomplish  more  than  merely  a 
balance  between  receipts  and  expenditures.  The  happy-go- 
lucky  methods  by  which  appropriation  bills  have  been  delayed 


352 


The  Government  Accountant. 


until  the  closing  days  of  the  session  will  have  to  be  reformed 
if  the  law  is  to  be  really  operative.  It  comes  as  near  giving  the 
President  a  veto  of  separate  items  of  an  appropriation  bill  as 
anything  that  could  be  devised  under  our  system,  and  it  is, 
briefly,  the  most  beneficent  change  that  has  been  introduced 
into  our  system  of  national  finance  since  its  organization.” 

V  The  importance  of  this  provision  of  law  is  not  overesti¬ 
mated.  The  improvement  it  will  induce  in  the  management  of 
our  system  of  national  finance  will  be  a  continuing  beneficence. 
But  of  equal  importance  will  be  the  improvements  it  will  in¬ 
duce  in  the  public  accounting  system  made  necessary  to  fur¬ 
nish  a  correct  basis  for  the  estimates  and  recommendations  it 
requires  from  the  Secretary  of  the  Treasury  and  the  President. 
It  is  your  duty  to  devise  and  establish  the  accounting  changes 
required. 


A  NEW  CO-ORDINATE  BRANCH  OF  GOVERNMENT  NEEDED. 

The  founders  of  our  government  won  undying  fame  for 
their  wisdom  in  providing  for  three  independent  departments 
of  government  exercising  co-ordinated  powers.  To  the  wis¬ 
dom  of  these  provisions  we  today  ascribe  the  stability  of 
our  institutions.  The  time  has  come  when  the  need  of  a 
fourth  independent  and  co-ordinate  department — a  depart¬ 
ment  of  accounts  and  statistics — has  been  demonstrated.  To 
the  work  of  such  a  department  posterity  is  certain  to  ascribe 
the  efficiency  of  their  government. 

If  public  administration  is  to  become  as  efficient  as  pri¬ 
vate  management,  the  duties  of  prescribing  accounting  sys¬ 
tems,  so  as  to  bring  into  view  and  assign  to  its  true  place  of 
importance  every  economic  factor  and  social  detail  necessary 
for  correctly  guiding  public  opinion,  must  be  performed  by 
public  officers  who  are  independent  of  the  legislative,  executive 
and  judicial  departments  of  the  government,  whose  work  it 
is  their  duty  to  review  and  audit.  The  functions  of  such 
a  department  will  be  scientific,  not  legislative,  executive,  or 
judicial.  The  duty  of  its  officers  will  be  to  examine  all  evi¬ 
dence  and  determine  whether  or  not  all  sums  due  to  the  gov¬ 
ernment  have  been  collected,  and  whether  or  not  all  public  dis¬ 
bursements  have  been  made  as  directed  by  authority  of  ordi¬ 
nance  or  law.  Their  certificate  will  vouch  for  the  honesty 
of  every  person  responsible  for, the  handling  of  public  funds, 
and  their  comparative  reports  will  demonstrate  his  executive 
efficiency. 

The  higher  duties  of  the  department  will  be  to  formulate 
standards  of  efficiency,  tabulate  and  publish  comparative  sta¬ 
tistics  showing  the  results  of  experience,  and  demonstrating 


353 


The  Government  Accountant . 


3  011 


2  098429456 


by  scientifically  ascertained  facts  the  effects  of  governmental 
policies  in  promoting  or  retarding  the  common  good. 

The  department  of  accounts  and  statistics  should  be  modeled 
after  the  judiciary.  Its  officers  should  be  appointed  or  elected 
in  the  same  manner  as  the  Justices  of  the  Supreme  Court. 
They  should  enjoy  the  same  tenure  of  office,  receive  the  same 
compensation,  and  be  equally  as  independent  of  the  legisla¬ 
tive  or  executive  branches  of  government. 

The  functions  of  this  department  will  be  to  promote 
efficiency,  prevent  waste  or  fraud,  and  to  report  facts,  uninflu¬ 
enced  by  the  commercial  or  political  necessities  of  any  person, 
set  of  men,  or  party,  and  to  supply  correct  information  for 
the  guidance  of  the  public  policies  adopted  by  the  people. 

When  those  things  are  done  there  is  no  reason  in  the  nature 
of  things  why  public  administration  may  not  become  as  effici¬ 
ent  as  private  management.  The  doing  of  these  things  will 
make  all  American  units  of  government — the  school  district, 
the  township,  the  village,  the  city,  the  county,  the  State  and 
the  Federal  government — the  most  efficient  organizations  for 
the  promotion  of  the  common  good  produced  by  twentieth 
century  civilization. 

These  things  will  be  done  when  the  business  men  of  the 
country  unite  in  demanding  that  they  shall  be  done. 

CONCLUSION. 

It  is  not  your  function  to  enact  laws.  It  is  your  func¬ 
tion  to  analyze  laws  and  the  construction  given  them,  with 
the  purpose  of  giving  a  proper  explanation  of  their  admin¬ 
istration  and  effects  through  the  statistical  statements  fur¬ 
nished  from  the  accounts  you  keep. 

The  creative  powers  you  may  exercise  are  of  the  highest 
order.  It  is  your  function  to  erect  standards  by  which  the 
intelligence  and  justice  manifested  in  laws  may  be  determined. 

Cause  your  work  to  honor  you,  and  you  will  make  a  con¬ 
tribution  to  the  common  good  that  cannot  be  computed  in 
terms  of  the  money  of  accounts,  but  it  will  inspire  to  honorable 
conduct  all  with  whom  you  come  in  contact. 

Upon  your  patient  and  intelligent  work  the  effective 
administration  of  our  public  business  depends. 

From  the  scientific  standards  and  methods  you  employ 
must  be  drawn  the  information  by  which  alone  our  progress 
in  civilization  can  be  intelligently  guided. 


354 


